AMES -- Proposed changes in the European Union's agricultural
policies would mean more competition in export markets for U.S.
farmers, causing net farm income to decline by $1.4 billion per
year, according to the Food and Agricultural Policy Research
Institute (FAPRI).

According to a preliminary FAPRI report on the European Union's
proposed "Agenda 2000," the reforms would likely result in an
increase in European exports of wheat and other agricultural
products. "More competition from Europe would challenge the U.S.
position in world markets and could affect U.S.-EU trade relations,"
said Darnell Smith, an Iowa State University researcher and managing
director of FAPRI.

FAPRI, a joint institution of ISU and the University of Missouri,
analyzes major agricultural issues for Congress and other decision-
makers around the world.

The FAPRI report indicates that U.S. wheat exports and wheat prices
could each be reduced by about 6 percent if the proposed reforms are
fully implemented. U.S. corn and soybean prices could fall by 1 to 2
percent, and livestock prices by less than 1 percent.

Smith stressed that the results are tentative because a number of
assumptions were made about how the reforms would be implemented.
Debate on Agenda 2000 continues, and it is likely that changes will
be made before a final proposal is adopted by EU member states.

The proposed reforms include a number of changes to EU crop and
livestock policies. After the year 2000, support prices for grains,
beef and dairy products would be reduced, but compensation payments
to farmers would increase. The reforms would also make it less
likely that the EU would rely on compulsory set-aside programs to
reduce grain supplies.

"Without compulsory set-asides, EU grain production would increase,"
Smith said. "When the United States ended set-aside authority in the
1996 Farm Bill, our production responded accordingly. Also, reduced
intervention prices mean that domestic grain prices in Europe could
fall to levels likely to prevail in world markets."

If domestic grain prices fall to world market levels, European
exports would not require explicit export subsidies, and so would
not be restricted by World Trade Organization limits on subsidized
exports. "With increased production and no effective limitations on
exports, the bottom line is that EU wheat exports would increase,"
Smith said.

In contrast to the grain situation, changes in EU beef and dairy
policies may have only a limited impact on U.S. agriculture. The
FAPRI report indicates European consumers would benefit from lower
prices for beef and dairy products, but prices are unlikely to fall
enough to make the European Union competitive in world markets
without the use of export subsidies.

Under the Agenda 2000 reforms, grain and oilseed producers receive
the same payment regardless of whether they plant soft wheat, barley
or rapeseed. The European Commission argues that the oilseed
planting limitations imposed by the Blair House agreement between
the European Union and the United States would not be binding if
oilseed-specific payments are replaced by payments that apply
uniformly across all crops.

"If the Blair House limits on oilseed area are removed, we estimate
that EU oilseed production would increase," Smith said. "However, we
expect the increase in wheat area resulting from the reform package
to be larger than the increase in oilseed area."